The so-called global economic recovery doesn’t seem to be rubbing off on Macquarie Group, whose share price continues to founder as it announced a somber earnings outlook. While Macquarie managed to eke out a 21% increase in after tax net profit (and 3% rise in earnings per share) last year, CEO Nicholas Moore disappointed investors when the forecast that its capital, fixed income/commodities and securities groups would experience lower profit next year. Those groups account for the vast majority of the Macquarie’s total income.

Investors certainly didn’t appreciate the news. Within minutes, Macquarie’s share price was down 4% for the day to $36.81. The investment bank’s shares had peaked at almost $100 in 2007 at the height of the bubble époque, but fell to $15 in March 2008. Since then, investors flocked back to the bank, which out-lived imitators Babcock & Brown and Allco Finance Group. As recently as May 2010, Macquarie shares were trading above $50, in the two months since, its share price has fallen by 27% — during that time, the S&P200 ASX Financial Index has dropped 10%.

While investors had been were quick to fall for Macquarie’s recovery, the story wasn’t as positive as it seemed. As this column pointed out in early May while Macquarie’s share price was rising, it appeared that earnings recovery would be short-lived:

Not only did Macquarie’s income per share not really increase, but it benefited from “one time” break fee payments and management fees, which will no longer be paid. For example, by looking at MAp’s annual report, one can determine that in 2009, on top of the $345 million lump sum to internalise management, MAp also paid Macquarie “base and performance” fees of $26.7 million.

Over at Macquarie Infrastructure, the mother ship was paid fees of $46.3 million for management (as well as $100 odd million to give up management of Intoll, the “good part” of MIG). The MAp, MMG and most of MIG’s fees from will not be repeated and served to inflate Macquarie’s current year’s earnings.

Of course, the bank can’t be blamed for everything — it remains highly leveraged to the global economy and events beyond its control. As Moore noted

It’s very, very difficult for us to make a forecast about where we’ll end up at the end of the year … there’s been a substantial decline in confidence. Europe is making people nervous. The U.S. is making people nervous. There are a lot of reasons for nervousness.

Nevertheless, the group’s recent performance casts further doubt about just how strong Macquarie’s alignment between pay and performance is. Macquarie’s remuneration this year appears to contradict claims in its 2010 annual report that it had “revised some specific aspects of its remuneration arrangements during the year [and had placed] an even greater emphasis on longer-term incentives”. In fact, last year Macquarie CEO Moore received short-term benefits of $5.2 million while Macquarie Capital head Michael Carapiet and Fixed income boss Andrew Downes received $7.3 million. This is despite Macquarie’s share price falling by more than 60% in three years.